Real estate trends are constantly changing. Sometimes for good and sometimes for bad. One trend on the rise is the addition of Accessory Dwelling Units. However, you may be more familiar with the terms granny flat, in-laws quarters, or a casita. This trend has become popular in recent years and appears to be here to stay for the foreseeable future.
For many, the additional space greatly benefits their home and investments. But others find that there are more drawbacks than advantages.
Whether you are interested in adding an ADU to your property for extra income or a living space for a family member, it is a good idea to investigate the benefits and how it would fit into your particular circumstances to ensure you get a good return on investment.
Here are a few pros and cons to help answer the question, “Are ADUs a good investment?”
Pros of Building an ADU
There are many different types of ADU, and each has various benefits;
Versatile Space
When you add an ADU to your property, there are many different ways to use the space. They may be attached or detached and can be for your family’s personal use or for business income. An attached option may look like completing a garage conversion to turn unused car space into a fully functioning studio apartment with a kitchen and bathroom for rent or use by a family member. Detached units make an excellent option for a home business office or short or long-term rental property. The opportunities from the additional square footage are vast.
Value
Studies show that having an ADU on your property adds to the value of your home. This is one of the great benefits of adding the additional space to your property. Not every city sees great real estate benefits from ADUs, but in more populated areas, the average home listed with an ADU is priced 35% higher than comparable homes in the same area. The additional value should not be the primary factor you consider investing, but it is definitely an additional benefit.
Income
The most popular reason for building an ADU is the rental income opportunity. Many homeowners use these additional spaces to rent out, either as a long-term annual lease or for short-term rentals, such as with Airbnb or VRBO. Using an ADU as a rental affords homeowners the chance to earn passive income from a property they own and is a great way to bring in extra funds. In populated cities such as Los Angeles, Houston, and Portland, it can be very profitable to use an ADU as income.
Cons of Building an ADU
Though ADUs have many benefits, there are some drawbacks to consider that may affect your decision to build one;
Loss of Space
When using an existing space, such as a garage or backyard area, to construct an ADU, you ultimately suffer the loss of that space. Therefore, you need to consider the repercussions of doing so before deciding to move forward with an ADU. For instance, if you would like to convert your garage, where will you park cars and other vehicles, or store outdoor gear and seasonal items? Likewise, if you decide to build an ADU from the ground up in a side or backyard, you will no longer have use of that space for outdoor recreation, lawn for pets, or for future plans such as putting in a pool or firepit. These circumstances may not affect you, but it is crucial to consider every aspect of how building could affect you.
Cost
Building an ADU is a considerable cost. Though you may recoup much or the entirety of the expenses in rental income, you need to make sure that you can afford the cost of an ADU up front and the investment if, for some reason, the rental income does not work out. For instance, the 2020 pandemic considerably affected the short-term rental market for a period of time. Additionally, you must ensure that you can keep up with the expenses of running a rental, such as cleaning costs, repairs, insurance, etc.
Disruption
If you intend to use an ADU as a rental space, it is vital to consider the effect that may take on your daily life. If your ADU is on the property of your primary residence, you will likely have guests in your space. For instance, even though the ADU has its own entrance, you may have shared spaces such as yards and driveways. Even if your ADU is used as a space for a family member, it is wise to consider how that may change your lifestyle or family dynamic to live in close quarters. Source
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